Norway merges payment systems to combat global competition

Norway’s banks are fighting off competition from global technology giants by creating a merged payment service.

The banks have signed a letter of intent to bring three payment and identification systems – Vipps, BankAxept and BankID Norway – under the same roof.

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“Joining forces will enable us to achieve improved cost efficiency, strengthened innovation and an enhanced purchasing experience in the retail and consumer markets,” said Jan Bjerved, managing director at BankID Norway. “The new undertaking, based in Oslo and employing 108 staff, will represent a unique fintech [financial technology] entity with considerable expertise in payments, identification and product development.”

The banks behind the move include DNB, Eika and Sparebank 1 Gruppen. They expect to have the new joint company up and running by 1 August 2018, pending Norwegian authorities’ approval, and plan to expand it internationally.

The banks cite radical upheaval in the payments market as a key reason for the move, with changes in consumer behaviour, technology and the regulatory environment.

In particular, the EU’s impending revision to the Payment Services Directive (PSD2) could open up Nordic banks to new competition from global tech giants such as Apple, Facebook and Google. Apple has already made its move into Denmark, Finland and Sweden by launching its mobile payments app Apple Pay in October.

“Global players already have a major presence in the Norwegian payments market, and technology giants are ready and waiting to capture a share of Norwegians’ payments,” said Bjerved. “Through this undertaking, Norway is better positioned to compete against major foreign players.”

The three bank-owned systems in the new venture are well established in Norway. Vipps, launched by DNB in 2015, is a mobile payments app with about 2.7 million users nationwide. In March 2017 it was spun off into a separate company co-owned by more than 100 Norwegian banks.

The second system is BankAxept, Norway’s national payment scheme, which supplies the card payment side of the equation. About 80% of card payments in the country use a BankAxept card, and it accounted for more than 1.6 billion transactions in 2016.

The third system, BankID, is used for electronic identification by every Norwegian bank, digital public services and a growing number of businesses. Today, 3.7 million Norwegians have BankID and 1.4 million use it on mobile devices.

Frode Lervik, financial services expert at PA Consulting, sees the merger plans as an interesting development. What impresses him is that each of the three companies brings different expertise to the table.

“Today, Vipps transactions are largely based on international card transactions, which are costly,” said Lervik. “Vipps has already expressed the intention to introduce BankAxept in Vipps, which will contribute to bringing the cost down. Being part of the same company will probably make it easier to align development activities to speed up the introduction of new, interesting offerings.

“Together, [the three companies] should be able to bring strong propositions to the market but, as in all mergers, after the announcement, they have to make it happen.”